CHAPTER 5
U.S.–Japan Trade Conflicts:
Semiconductors and Super 301
The U.S.–Japan trade con›icts over semiconductors as well as the
Super 301 negotiations over supercomputers, satellites, and forest
products highlight the importance of broad consensus in the United
States in favor of sanctions for bargaining outcomes. The negotiation
over semiconductors was one of the most drawn out and acrimonious
between the two countries. It started in the early 1980s, when the
United States began efforts to deal with the undercutting of the American semiconductor industry by increasingly competitive Japanese
‹rms. Since then, sustained American pressure, backed by the threat of
further action, helped to produce a major bilateral agreement in 1986
and another one in 1990, providing American chip producers with
some relief from Japanese dumping in the U.S. market and with
greater access to the Japanese market. Although the negotiations were
often protracted and dif‹cult, tough talk by both the Reagan and Bush
administrations forced Japan to halt its predatory pricing behavior
and to open up its protected domestic market to American semiconductor products. American pressure thus played a crucial role in preventing the further slide of the U.S. semiconductor industry.
The Super 301 investigations between 1989 and 1990 in turn
stemmed from U.S. concerns about Japan’s protectionist policies in
the satellite, supercomputer, and forest products industries. In the ‹rst
two issue areas, the United States complained that Japan, through
policies of industrial targeting designed to promote the development of
autonomous supercomputer and satellite industries, had effectively
excluded American producers, who were very competitive elsewhere in
the world, from its public-sector market. In the area of forest products,
the United States directly challenged a wide array of tariff and nontariff barriers in the Japanese forest products market that not only were
GATT-illegal but also impeded American producers’ access to the
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Japanese market. The negotiation in each of the cases presented here
allowed the United States to achieve its most immediate objective of
opening Japanese government procurement to foreign bidders or of
forcing the much-desired Japanese tariff cuts. Although, in the supercomputer and satellite cases, the United States may not have achieved
its long-term objective of deterring Japanese government targeting of
these industries, by prying open Japan’s protected home market, it at
least succeeded in thwarting the rapid ascent of Japanese industries in
the global market.
In each of the cases cited here, domestic interest groups’ uni‹ed support for threat tactics enhanced the chances for American negotiators
to obtain a favorable outcome. Unlike in U.S. trade negotiations with
China, where efforts by export-seeking industries to impose sanctions
on the target were often undercut by import-using interests who were
unwilling to see their access to their potential suppliers cut off, exportoriented American producers involved in each of these cases did not
encounter any major opposition from other segments of the business
community. Indeed, since the United States and Japan competed in so
many product categories, there was a large constituency in the United
States that faced Japanese competition. Under these circumstances,
sanction threats won support not only from the semiconductor, supercomputer, satellite, and wood producers, who were interested in
expanding U.S. market access in Japan, but also from other importcompeting interests (such as electronics and auto manufacturers in the
semiconductor case) who would bene‹t from the restrictions placed on
Japanese exports to the United States. In the Super 301 cases, organizations such as the U.S. Chamber of Commerce and NAM that were
opposed to sanctions in the China cases all came out in favor of sanction threats against Japan. The pervasive feeling within the U.S. business community that Japanese nurturing of its domestic industries seriously injured American producers in various sectors further fed this
protectionist sentiment. Since the sanction threats promised bene‹ts to
either the export-seeking interests (if sanctions succeeded in extracting
concessions) or the import-competing interests (if they had to be
imposed), they enjoyed wide support from the U.S. business community. This unprecedented unity signaled to Japan that it could hardly
escape some form of sanctions should it fail to make meaningful concessions, prompting the Japanese to take U.S. demands more seriously.
Reinforcing uni‹ed industry support was the executive branch’s
greater willingness to adopt a proactive trade policy in order to lessen
congressional pressure to level the playing ‹eld for American indus-
U.S.–Japan Trade Conflicts
129
tries. Especially when the issue involved high-technology industries
with signi‹cant military and economic implications, the executive
branch had demonstrated considerable assertiveness, frequently shifting from a policy of benign neglect in favor of “managed trade” to
reshape comparative advantage in such leading industrial sectors and
to maintain the overall competitiveness of the American economy.
Even in the wood products case, where such “strategic trade” considerations were less prominent, the consensus that the ‹eld on which the
trade game was being played was unfairly tilted against the United
States produced strong incentives for executive action.
Lack of strong domestic opposition, combined with the executive’s
greater willingness to intervene, demonstrated to the Japanese the U.S.
resolve in seeking a fair trade outcome, indicating that sanction threats
had the full support of the major domestic actors. Domestic unity
enhanced American threat credibility, leading to the conclusion of several agreements that increased the U.S. share of the Japanese market.
A highly competitive trade structure between the United States and
Japan thus facilitated the effective use of aggressive bargaining tactics
toward that country.
The U.S.–Japan Semiconductor Trade Conflict
Industry Initiatives
The semiconductor dispute was initiated over industry complaints that
the Japanese government, through its classical strategy of promotion
and protection, had created a highly competitive domestic industry
that, by the mid-1980s, had outperformed American ‹rms in terms of
both the quantity and quality of semiconductor production.1 As
Japanese companies had displaced American ‹rms as the leading merchant semiconductor producers and as the phenomenal rise in Japan’s
share of the global semiconductor market had put American ‹rms at a
distinctive comparative disadvantage, U.S. chip manufacturers began
to direct their attention to two particularly irritating forms of Japanese
practices: Japanese dumping in both the United States and the world
market and the lack of access to the Japanese domestic market.
It was at the urging of American chip producers that Washington
initiated market access negotiations with the Japanese government.
Early industry pressure forced the Japanese to enter into negotiations
with the United States under the auspices of the U.S.–Japan Working
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Group on High Technology in April 1982. This early set of talks produced an agreement in which the Japanese government committed
itself to using its authority to prevent dumping, providing U.S. ‹rms
with greater access to Japanese patents, refraining from copying U.S.
propriety circuits, and encouraging Japanese ‹rms to increase purchases of U.S. semiconductor products through administrative guidance.2 Throughout 1983, the semiconductor industry released numerous reports and studies with detailed accounts of the unfair trade
practices pursued by Japanese chip makers and the Japanese government. In April 1983, as the second round of bilateral negotiations over
market barriers got under way, industry representatives explicitly
called on the government to demand a 30 percent share of the Japanese
market, a share that they maintained was what they would have
deserved if the Japanese market were open.3 The industry went even
further to draft a Section 301 petition in the summer of 1983.
Between 1983 and 1985, the situation of the semiconductor industry
further deteriorated. By 1985, the aggressive pricing strategies of
Japanese producers, the exit of almost all merchant American companies from the production of DRAM chips, and the sustained cyclical
slump in industry demand combined to produce a sense of crisis
among U.S. semiconductor manufacturers. Such dismal industry performance induced a pervasive sentiment among industry representatives that, should the U.S. government fail to come to the rescue of the
semiconductor industry, the United States would have let the larger,
better-‹nanced Japanese competitors continue to strengthen their
dominance of the world market in the late 1980s and 1990s. The aggravation of industry plight also convinced U.S. semiconductor makers
that ad hoc bilateral agreements such as the one brokered by the
U.S.–Japan Working Group on High Technology were inadequate
and that it might take sanctions to get Japan to alter its behavior.
Thus, in a crisis atmosphere, U.S. semiconductor producers began to
call on the government to redress the trade balance. These actions
dovetailed with mounting congressional and administrative concerns
about the growing U.S. trade de‹cit with Japan. Through extensive
and continuous lobbying activities, the semiconductor manufacturers
exercised considerable political clout and successfully brought to the
attention of the government and the public the connection between the
industry’s troubles and unfair Japanese competitive tactics.
The Semiconductor Industry Association (SIA) played an indispensable leadership role during the industry’s extended campaign for
government intervention. Formed in 1977 in explicit response to the
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131
increasing competitive challenge from Japan, the SIA played a pivotal
role in the industry’s successful effort to realize a number of its trade
policy objectives between 1979 and 1986.4 By the mid-1980s, the SIA
had developed into a major industry association representing ‹ftyseven American semiconductor producers, composed of both giant
“captive” producers such as AT&T, IBM, and Digital Equipment,
which manufactured for internal consumption, and “merchant” producers such as Texas Instruments (TI), which supplied other semiconductor-user ‹rms. While in principle the SIA favored free trade policies, most member ‹rms agreed that the United States was not obliged
to extend this principle to the Japanese, whose pursuit of mercantilist
strategies had placed the survival of American semiconductor industry
in jeopardy.5
When it became clear that informal, ad hoc bilateral negotiations
had failed to relieve the industry’s plight, the SIA began to see the ‹ling
of a formal petition under U.S. trade law as a potentially effective measure to pressure Japan to change its policies. Thus in June 1985 the SIA
submitted a Section 301 petition against Japan’s unfair competitive
tactics, which presented substantial evidence of market barriers in
Japan: in 1984, the U.S. semiconductor industry captured 83 percent of
sales in the American market, 55 percent in the European market, 47
percent in other (mostly Asian) markets, but only 11 percent in the
Japanese market.6 In the petition, the SIA sought to invoke the
rhetoric of “fair trade” by pinning the blame for both the dumping and
the market access problems squarely on the Japanese government. The
association contended that the Japanese government, through a series
of anticompetitive practices designed to promote an industry deemed
essential to national development, had created a market structure
highly discriminatory against foreign producers. As a result, according
to the SIA, American ‹rms, which commanded a dominant position in
all other semiconductor markets, had seen their market share in Japan
hovering at the same 10 percent since 1975.7
The SIA further charged that, by providing direct and indirect assistance to the domestic industry, the Japanese government helped reduce
investment risks facing Japanese ‹rms and encouraged their willingness to invest even during a recession, in effect promoting the dumping
of semiconductors by Japanese ‹rms. The SIA concluded that, since
these Japanese policies denied American ‹rms “fair and equitable market opportunities,” it was imperative for the USTR to monitor Japan’s
predatory export behavior and market barriers and to take appropriate measures to counter the effects of Japan’s industrial targeting prac-
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tices. Speci‹cally, it called on the USTR to press the Japanese government to encourage its ‹rms to increase their purchases from American
semiconductor companies, to strictly enforce U.S. antidumping laws
against Japanese ‹rms, and to undertake investigations of the Japanese
‹rms’ antitrust behavior.8 Should Japan fail to substantially change its
behavior, the SIA recommended sanctions against Japan.
The SIA’s 301 petition was followed by several other industry complaints. Shortly after the SIA submitted the 301 petition, the small U.S.
memory producer Micron Technology ‹led under U.S. antidumping
laws a claim that Japanese producers (such as Fujitsu, Hitachi, NEC,
Oki, Toshiba, and Matsushita) were dumping 64K DRAMS in the
American market. In August 1985, the Justice Department initiated an
investigation into possible predatory pricing by Hitachi. A month
later, three more American ‹rms—Intel, Advanced Micro Devices
(AMD), and National Semiconductor—‹led another antidumping
complaint, alleging that Japanese producers were dumping high-density EPROMS, another memory device in which American producers
still had a competitive edge.9 Later, TI sued eight Japanese semiconductor producers for infringing various TI patents on semiconductor
memory.
Tremendous industry pressure increased the imperatives for action
on the part of the Reagan administration. In November 1985, the
USITC issued a preliminary ‹nding that Japanese ‹rms had harmed
American industry. At about the same time, a “strike force” set up by
the Reagan administration recommended that the U.S. government
initiate unfair trade complaints against Japan. Finally, in response to
industry demands, the U.S. Commerce Department initiated a claim
on behalf of American producers hurt by Japanese dumping in the
256K DRAMS and 1M (one megabyte) DRAMS markets. The Commerce Department’s self-initiation without any industry petition was
considered to be an unprecedented move. Since the Japanese dominated this product category, the threat of retaliation was intended to
hurt the Japanese in the areas where they had the greatest strength.10
Meanwhile, the SIA stepped up the pressure on the administration
to support its petition, writing letters to, and holding frequent meetings
with, administration of‹cials. It hired a public relations ‹rm to expand
media coverage and to draw greater public attention. The SIA also
strengthened lobbying activities on Capitol Hill by organizing a support group of twenty congressmen, in the process gaining greater
access to key administration of‹cials. For example, through meetings
with Secretary of State George Shultz arranged by the congressional
U.S.–Japan Trade Conflicts
133
support group, the SIA was able to convince him of the need to take
‹rm action to respond to the Japanese challenge.11
The rising in›uence of the SIA and individual chip manufacturers
ensured a relatively uni‹ed American position. The SIA moved early
on to overcome possible resistance from other domestic players. In
the ‹rst place, since the semiconductor industry was composed of
‹rms that produced different types of chips (e.g., DRAMS versus
EPROMS) as well as different types of companies (e.g., merchant versus captive producers), the SIA ‹rst of all sought to reconcile the different preferences that member companies might have regarding the
trade con›ict with Japan. The SIA invoked the common objective of
gaining greater access to the Japanese market to unite manufacturers
of both DRAMS and EPROMS. Captive ‹rms such as IBM, while not
particularly supportive of trade actions at the outset, eventually consented to the SIA’s position under the organization’s persuasion.12
More broadly, the SIA did not encounter any obvious domestic
opposition in its persuasion efforts. Many American business groups
outside of the semiconductor industry (such as the electronics, automobile, and machine tools producers), who were growing increasingly
frustrated with continuing trade barriers and were disappointed with
the slow progress achieved under trade agreements with Japan, were
demanding tough action from the U.S. government to dampen the
effects of unfair Japanese competition. For example, representatives of
the U.S. electronics industry, who felt that the trade dispute with Japan
ought to be given priority in the U.S. trade policy agenda, urged the
U.S. government to retaliate against Japan’s failure to open up its
domestic market and to stop dumping on the world market. The AEA,
a trade group representing over thirty-‹ve hundred U.S. companies
with $305 billion in global sales, launched a massive publicity campaign followed by lobbying efforts in Washington under the provocative banner “America’s future at stake.” AEA representatives contended that, as one of the nation’s largest manufacturing industries
and as an important foundation for the rest of the economy, the electronics industry directly impacted on the U.S. economic and military
security. The AEA called for a strategic approach to trade policy that
would break down trade barriers in Japan and safeguard the interests
of American producers.13
In addition, since the AEA represented major semiconductor users
who might potentially object to the petition due to the increase in chip
prices that could ensue, cooperation from the AEA would have been
essential to the success of the Section 301 petition. As a result, the SIA
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started early on to address the concerns of end users who might be
adversely affected by the increases in chip prices in the United States.
To compensate for American users, the SIA persuaded U.S. suppliers
to agree not to push for additional quotas or ›oor prices on Japanese
products as long as the Japanese were selling their products at prices
above the individual ‹rms’ cost of production. As the negotiations
with the Japanese proceeded, the SIA also engaged in frequent consultations with the AEA. The chairman of the SIA’s public policy committee, George Scalise, worked particularly hard to secure AEA’s
endorsement of the Section 301 petition.14 Like the U.S. merchant
semiconductor ‹rms, many major users of semiconductors had come
to believe that the lack of fair market access in Japan would seriously
jeopardize the interests of producers and users alike. Firms such as
IBM and Hewlett-Packard indicated that they would not resist the
semiconductor ‹rms’ trade initiatives, thus allowing the SIA to proceed with its 301 petition. Moreover, end users such as the American
computer industry both lacked consensus among themselves and
wielded far less in›uence than the semiconductor manufacturers.15
This enabled the SIA to forge a consensus with the end users. In the
end, the AEA produced a letter to USTR supporting the petition.
With Japan’s increasing penetration of the American market negatively affecting so many sectors, no other U.S. business groups visibly
opposed the SIA’s trade initiative. When American negotiators later
threatened to impose sanctions on Japan should Japanese ‹rms fail to
stop dumping and increase market share for American ‹rms, most of
the products on the sanction list were ones (such as electrical devices)
that posed a competitive threat to American manufacturers. Since
these American producers could bene‹t from the restrictions on Japanese products in the event that sanction threats failed, they did not
have any incentive to resist the sanction threats but rather had reason
to egg the SIA on.
If U.S. producers in industries (such as electronics) likely to be
affected by trade sanctions were not opposed to the sanction threats,
groups not directly affected by the Section 301 action (such as the automobile and machine tools industries) had even fewer reasons to interfere with the SIA’s actions. U.S. auto producers, for example, had
themselves felt victimized by the in›ux of more competitively priced,
fuel-ef‹cient Japanese auto imports, which drastically reduced American producers’ share in their home market. Not surprisingly, they did
nothing to obstruct the lobbying efforts of semiconductor producers.
U.S.–Japan Trade Conflicts
135
In short, the SIA was able to advance its trade agenda without
encountering any major domestic resistance. This unity across industry
borders strengthened the credibility of the SIA’s rhetoric. It also created
irresistible pressure on the Reagan administration to provide trade
relief through some form of government action. In the following sections, we will see how, under strong congressional and industry pressure, an administration ideologically committed to free trade veered
toward government intervention and managed trade and how U.S.
domestic consensus gradually started to elicit a Japanese response.
Reagan Administration Response to the Petition
Unlike in many other trade disputes, sanction threats against Japan
won strong support from Reagan administration of‹cials. That the
free traders of the United States would resort to government intervention in negotiations with Japan was truly unusual. But the shift toward
managed trade was hardly surprising when one took into consideration the magnitude of the threat that unfair Japanese competition
posed to the very existence of a critical American industry. As the U.S.
semiconductor industry faced the possibility of extinction, American
policymakers were becoming increasingly concerned about the impact
of Japanese industrial targeting on the ability of U.S. industries to
compete effectively in international markets. That the semiconductor
industry, one of the most dynamic sectors of the U.S. economy capable
of producing state-of-the-art technology, was turning to the government for help not only suggested the seriousness of the problem but
also signaled to the government the necessity of forging a close relationship with a critical domestic industry in an era when trade policy
was having an increasingly important impact on industrial competitiveness.
For American policymakers, it had become clear that the Japanese
government, through industrial targeting, was aiming to obtain comparative advantage in a range of high-technology sectors to ensure the
continued international market dominance of the Japanese economy.
The prevailing sentiment among administration of‹cials was that the
United States could not allow Japan to continue to capture the bene‹ts
of open international trade without also bearing the burden of competition in its own market. As Japanese companies were making substantial inroads at the expense of U.S. ‹rms in a number of high-technology industries, including the semiconductor industry, U.S. negotiators
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Trade Threats, Trade Wars
felt that the American government could not leave the Japanese threat
unchecked and had to come up with a policy response to Japan’s protectionist policies.
It is important to note that the semiconductor con›ict took place at
a time when the gradual erosion of the American economy enhanced
the appeal of the “strategic trade” argument among government
of‹cials. According to Judith Goldstein, the convergence of a number
of factors strengthened the business community’s appeal for government intervention: the fact that various domestic laws provided relief
from some of the alleged unfair trade practices; the existence of a vocal
coalition in Congress increasingly impatient with the disparities
between the principle of free trade and persistent unfair foreign trade
practices; and the ascendance of strategic trade advocates in the academic community, who argued that failure to adopt protective policies
aimed at fostering strategic industries may seriously jeopardize
national welfare. These domestic political realities both permitted and
justi‹ed the shift in government policy away from principled support
for free trade toward the managed trade approach.16
Recognizing the need to preserve a competitive U.S. industry,
administration of‹cials, particularly those in the Commerce Department, had adopted a proactive approach toward the semiconductor
trade issue. Starting in the early 1980s, they had sought to exert strong
pressure on the Japanese to create a level playing ‹eld for U.S. ‹rms.
Commerce of‹cials such as Malcolm Baldrige and Clyde Prestowitz,
who possessed prior industry knowledge and were fully aware of the
depth of the problem, were known for their determination to save this
strategic industry. Out of the belief that the industry’s decline could
have strongly negative implications for the competitiveness of the
American economy as a whole, they had been engaged in a series of
negotiations with the Japanese and had also taken a number of other
measures to prevent the further slide of the semiconductor industry.
Also important in shaping the Reagan administration’s policy orientation was congressional Democrats’ attack against the Reagan team
for its indifference to the ballooning trade de‹cit with Japan. In particular, the release by the Commerce Department in August 1985 of the
United States’ overall and bilateral trade de‹cit statistics for the ‹rst six
months of the year immediately produced an uproar in Congress,
resulting in the introduction of a good number of protectionist bills in
Congress targeted speci‹cally at certain priority countries (including
Japan) or at certain sectoral issues. At the same time, the idea of reforming the trade system through omnibus trade legislation was gaining cur-
U.S.–Japan Trade Conflicts
137
rency among a growing number of congressional members. Moreover,
with the almost certain passage of the restrictive Jenkins textile bill in
the fall, the president was faced with the dif‹cult task of mobilizing
enough support in Congress to sustain a presidential veto. Mounting
congressional assertiveness on trade issues created an imperative for the
White House to take some initiatives in order to preempt congressional
challenge to executive authority over trade policy.17
Confronted with stepped up pressure from both Congress and
industry groups, Reagan administration of‹cials eventually forged a
consensus on the need for an aggressive negotiation strategy despite
some initial internal strains. To be sure, soon after the Section 301 petition was ‹led, senior Reagan administration of‹cials came up with different responses. Of‹cials at the USTR and the Commerce Department, seeing a vital American industry on the verge of demise,
supported the petition. These agencies were afraid that, by failing to
support the semiconductor producers’ petition and by allowing the
antidumping and unfair trade cases to proceed to ‹nal rulings, they
would provoke Congress into passing retaliatory trade bills targeted
speci‹cally at Japan and supporting other highly protectionist trade
legislation such as the Omnibus Trade Bill, which was then under consideration, thereby exacerbating the existing trade environment.18
Of‹cials at the Central Intelligence Agency (CIA) and the Defense Science Board, due to their concern about the growing dependency of the
Defense Department on foreign suppliers, shared this view.
Initially, other departments such as State, Treasury, and the NSC
were unwilling to see sanctions being imposed on the Japanese, insisting that problems of the U.S. industry partly resulted from poor management and that the Japanese government had taken some steps to
eliminate barriers to semiconductor imports back in the 1970s. That
Japan was both a friend and an ally of the United States further contributed to the reluctance of the State Department and the NSC to
name it an unfair trader.19 Agencies such as the Of‹ce of Management
and Budget (OMB), the Council of Economic Advisors (CEA), and the
Justice Department, because of their adherence to the free trade principle, objected even more strongly to the aggressive trade negotiation
strategy endorsed by the Commerce Department and the USTR. For
these of‹ces, negotiating for a guaranteed market share not only would
constitute a violation of GATT rules as well as U.S. and Japanese
antitrust laws but would also interfere with the operation of dynamic
markets, sti›e technological development and innovation, and risk
inciting a renewed trade crisis between the two countries.20
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Trade Threats, Trade Wars
On the whole, however, the Section 301 petition received a sympathetic hearing from the Reagan administration. For one thing, the
semiconductor industry was considered to be a high-technology sector
having substantial spillover effects for the rest of the economy as well
as important links to the defense industry. Besides having an important impact on competition and trade in the semiconductor industry,
government intervention would also profoundly affect the competitive
position of a number of related sectors.21 For another, the SIA’s petition “was in line with the administration’s emerging stress on opening
foreign markets, did not directly advocate closing the U.S. market, and
would help mollify congressional critics who wanted a tougher Japan
policy.”22 Personal contacts also strengthened the SIA’s case at the
USTR. Since the SIA’s main counsel, Alan Wolff, had worked with
both the new USTR, Clayton Yeutter, and his deputy, Michael Smith,
these high-level contacts ensured that the petition would be given serious consideration at the USTR.
Thus the initial reservations that the State Department and the NSC
had about the petition did not prevent Yeutter from proceeding with
investigations of the SIA’s charges. Under the lead of the USTR and
the Commerce Department, the Reagan administration undertook a
series of initiatives, including the establishment of a “strike force” to
investigate Japanese dumping activities, in order to deal with unfair
trade activities.23 At this point, a small number of administrative agencies still had different opinions about the strike. At the crucial interagency meeting to consider whether to initiate the dumping case in
October 1985, representatives from the NSC and the State Department
voiced concerns that the investigation might jeopardize the United
States’ security relationship with Japan, particularly Japanese support
for the Strategic Defense Initiative (SDI).24 However, in view of the
magnitude of the U.S. competitive reversals in the microelectronics
market, they did not oppose the recommendation when it came up for
a vote. The recommendation was thus approved by the president in
December 1985.
As the investigations went under way in early 1986, several developments helped to dispel administration of‹cials’ lingering doubts about
the threats against Japan. Importantly, the two champions of the U.S.
semiconductor industry, AT&T and IBM, whose viability was considered key to the health of the U.S. semiconductor industry, were beginning to call on the government for help. Executives of these companies
told Reagan administration of‹cials that, because they had been
forced by the decline of their equipment and materials suppliers to
U.S.–Japan Trade Conflicts
139
channel more resources into semiconductor development and, in the
process, were becoming more dependent on the Japanese, it was imperative that the administration intervene in the semiconductor market
“for the good of the nation.”25 The plea from these two semiconductor
giants fully revealed the extent of the problem and helped administration of‹cials to overcome their remaining doubts about the threats
against Japan.
The sense of urgency voiced by these two giants was shared by other
semiconductor manufacturers. In a document submitted to the USTR
in October 1985, the SIA again presented overwhelming evidence of
Japanese ‹rms’ collusive behavior, which excluded foreign producers
from the Japanese market and undercut America’s global competitiveness. The association further condemned the Japanese government for
implicitly encouraging such behavior and called on the U.S. government to be an active “advocate of legitimate commercial interests”
rather than merely “an impartial adjudicator” of the dispute.26
As an important component of its campaign, the semiconductor
industry devoted considerable energy to convince the State Department of Japan’s disproportionately small market for U.S. chips. In
light of substantial and compelling evidence of dumping and of the
continued dif‹culties American ‹rms faced in accessing the Japanese
market after repeated liberalization, the State Department and some
other agencies that had traditionally come to the defense of Japan
reached the conclusion that the Japanese market was effectively closed
and that government action was necessary to ensure the survival of a
critical industry. That addressing the problem through trade laws was
not a viable alternative, as it would likely trigger legislative trade retaliation, increased the attractiveness of a hawkish posture. Moreover,
mounting political pressure on Secretary of State Shultz and the state
personnel to de‹ne American interests in both economic and politicalsecurity terms also led the State Department to reconsider its approach
toward the trade dispute with Japan.27 Thus, despite some initial resistance, the State Department and agencies more concerned with
national security issues ended up supporting the Commerce Department and the USTR, thereby providing the latter with greater room for
maneuver.
With a broad consensus in place, the Commerce Department and
the USTR moved ahead with the dumping and market access negotiations. Incessant congressional and industry pressure prodded American negotiators to bargain even more aggressively, in the process
forcing more Japanese concessions.28 On July 30, 1986, the two gov-
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ernments reached the third semiconductor agreement. Formally signed
in September, the agreement addressed all major American concerns
with respect to both dumping and market access.29 The Japanese concessions in the area of market access were perhaps most important, as
the Japanese government not only committed itself to assisting American companies seeking to increase their sales in Japan and to coordinating the relationship between Japanese users and U.S. suppliers30
but also, in a con‹dential side letter to the accord, explicitly undertook
to increase foreign makers’ share of the Japanese market to a 20 percent target within the ‹ve-year term of the agreement.31 The 20 percent
target, if achieved, would effectively double the foreign share of the
Japanese market. Overall, the agreement clearly signaled the Japanese
government’s willingness to improve foreign ‹rms’ access to the Japanese market and, as a result, was widely hailed by SIA and government
of‹cials.
The 1986 semiconductor trade agreement was unprecedented for
American trade policy in many respects. As authors such as Laura
Tyson pointed out, not only was it the ‹rst time that the United States
had threatened trade sanctions on Japan for failing to abide by the
terms of a trade agreement, but it was also the ‹rst trade agreement the
United States entered into in a high-technology, strategic industry
aimed at improving market access and regulating trade in both Japan
and the global market. In addition to setting the precedent for U.S.
demands for “voluntary import expansion” (VIE), the agreement
showed that the United States, out of concerns about the possible erosion of American leadership in strategic high-technology industries,
was increasingly willing to abandon the principle of free trade in favor
of aggressive unilateralism and managed trade.32 The agreement therefore signi‹ed a fundamental change in the U.S. government’s
approach toward competition in high-technology industries.
Japanese Response to American Pressure
On the Japanese side, the semiconductor industry and the bureaucracy—the Ministry of International Trade and Industry (MITI)—
were the major actors involved in the semiconductor dispute. Initially,
U.S. pressure had elicited different responses from Japanese semiconductor manufacturers. On the one hand, some semiconductor ‹rms did
not mind if the negotiations failed and tariffs had to be imposed on
Japan. Indeed, they even considered this outcome to be preferable to
an agreement that would allow MITI to reinstate its control over prices
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141
and other requirements over the disclosure of propriety manufacturing-cost information. On the other hand, there also were ‹rms that
favored making some concessions in order to avoid American retaliation. Many of these ‹rms were exporters of such products as electrical
consumer goods that were concerned about the potential effects of
U.S. retaliation on their exports to the United States. Thus the position
of major ‹rms on the appropriate response to the United States was
con›icting, providing some possibility for an agreement.
The key objectives in this dispute—reaching a settlement and avoiding American retaliation—for MITI, the chief bureaucratic actor in
this case, coincided with those of the prime minister and leaders of the
Liberal Democratic Party (LDP). As Ellis Krauss argues, the institutional interests of MITI in this case contradicted those in the industry
in favor of no agreement. In particular, MITI seemed to have an interest in using a trade agreement, with the powers and mechanisms that it
would confer to the bureaucracy, to regain control over the semiconductor industry, an industry that was increasingly able to assert its
autonomy. Krauss suggests that the fact that MITI had subsequently
developed monitoring mechanisms with even broader coverage than
the agreement would have warranted was fully consistent with such an
interpretation.33
While Japanese exporters’ preferences for agreement and MITI’s
interests in using an agreement to enhance its waning domestic power
had left open the possibility for concessions, it was also important to
notice that heavy-handed American pressure had ‹gured prominently
in the calculations of Japanese negotiators, compelling the Japanese to
accede to American demands. Prestowitz, for example, reported that
the Japanese were particularly concerned that the Americans were seriously considering naming Japan as an unfair trader and that they
feared that if they were to get the “unfair trader” label this time, then
they might get stuck with it in many other cases.34 The imposition of
sanctions against Japan in particular sensitized Japanese negotiators to
the resolve of American industry and government of‹cials to address
the semiconductor problem. After the imposition of sanctions, a high
MITI of‹cial reportedly told Prestowitz that MITI ought to have
taken American demands more seriously sooner.35 Other Japanese
of‹cials concluded from their interactions with their counterparts that
the United States was indeed bent on punishing Japan for its trade
infringements. For example, after his meeting with President Reagan
in Washington, Shintaro Abe, leader of the LDP, commented that
“there was no concrete indication that would suggest that the sanctions
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would be lifted” during Prime Minister Nakasone’s upcoming visit to
the United States and concluded that the political dynamics in Washington militated against any immediate action.36
In short, even though it took time for the Japanese to come to terms
with American demands, the Japanese eventually realized that all
major domestic actors in the United States were behind the threat and
that some concessions had to be made to avoid retaliation or to get the
Americans to lift it once it was in place. While Japanese negotiators did
come up with bargaining tactics designed to minimize their losses during the negotiations, they were clearly aware of the tremendous pressure coming from the United States and had to reluctantly accept basic
American demands.
The Imposition of Sanctions and the Effects of the 1986
Semiconductor Trade Agreement
Two years after the signing of the agreement, several semiconductor
manufacturers complained that Japanese ‹rms were violating the terms
of the dumping agreement. Speci‹cally, they were concerned that not
only was Japanese dumping of EPROMS widespread in third-country
markets,37 but U.S. total sales in Japan were not improving either.
Repeated Japanese violations of signed agreements presented American
negotiators with no other option but to consider the imposition of sanctions. The lack of results after more than six years of negotiation and
bargaining led most administration of‹cials, including the president
and some agencies with initial reservations, to embrace a more interventionist policy. Thus, in January 1987, the USTR threatened to retaliate with trade sanctions if Japanese ‹rms failed to conform to the terms
of the agreement by April 1. Meanwhile, in view of unmistakable evidence of Japanese violations and of the spiraling U.S. trade de‹cit with
Japan, both houses of Congress passed resolutions urging the president
to retaliate. The SIA also submitted a recommendation urging retaliation. To shore up U.S. credibility, a sub-cabinet-level interagency committee under the Economic Policy Council (EPC) proposed trade sanctions if the Japanese did not stop third-country dumping and improve
market access for American ‹rms. By the end of March, the EPC determined that Japan had violated the 1986 agreement and recommended
that the president proceed with trade sanctions.38
With Congress’s and the industry’s unanimous condemnation, the
president accepted the EPC recommendation and, on March 27,
announced the imposition of 100 percent retaliatory tariffs on $300
U.S.–Japan Trade Conflicts
143
million of Japanese electrical devices, including television sets, laptop
computers, disk drive units, stereo equipment, electric motors, and
other consumer goods.39 Some of the retaliatory items on the list were
ones for which American producers faced Japanese competition or
were manufactured by the same corporations that were charged with
violating the terms of the agreement (e.g., NEC, Fujitsu, and Hitachi).
Since the sanctioned products were manufactured by a large number of
American companies at competitive prices, they helped to prevent the
large price hikes that otherwise would have occurred if trade between
the two countries had been complementary. The choice of these products allowed American manufacturers competing with Japanese products to bene‹t from the increased prices of Japanese goods, thereby
strengthening and broadening the coalition in support of retaliatory
measures.40 The announcement of sanctions suggested that U.S. trade
policy had undergone dramatic shifts toward one that explicitly
demanded results from Japan. The imposition of sanctions on a major
friend and ally re›ected both the depth of the trade problem and the
perceived threat of the Japanese challenge to American industrial competitiveness.
To what extent did Japan respond to the sustained application of
American pressure and comply with the semiconductor agreement? A
number of studies suggest that the agreement played an important role
in boosting the American (and foreign) share of the Japanese market
and successfully stopped Japanese dumping in both the American and
third-country markets, even though the Americans had to apply sanctions in order to get Japan to comply with the agreement on thirdcountry dumping. Although the effects of the agreement were not particularly striking in the ‹rst few years after its signing, and the U.S.
share of the Japanese market did not immediately reach the 20 percent
target, the agreement played an important role in halting the sharp
decline of America’s competitiveness in the semiconductor industry
and prevented Japan’s monopoly of the global semiconductor market
(see ‹gures 5.1–5.3). Had the U.S. government refrained from the managed trade approach after 1985, Japanese producers “would probably
have moved from a position of rough parity to virtual dominance.”41
American negotiators subsequently continued to press the Japanese to
live up to their commitments and negotiated a new ‹ve-year bilateral
agreement when the 1986 agreement expired in 1991.42 Following the
signing of the new agreement, unrelenting government and industry
pressure succeeded in inducing Japanese companies to comply with an
agreement that threatened their interests, as foreign share of the Japa-
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nese market reached the 20 percent target in 1992 and 30 percent by
1997. U.S. attempts at negotiating a semiconductor agreement thus
produced signi‹cant gains that helped to consolidate American industry’s position in the global market.
Super 301: Supercomputers, Satellites, and Wood Products
In the 1989–90 Super 301 investigations into Japanese practices in the
supercomputer, satellite, and wood products industries, uni‹ed domestic support again turned out to be the key to enhanced credibility and
effectiveness of U.S. sanction threats, allowing the United States to by
and large achieve its negotiation objectives. Not only did American
supercomputer, satellite, and wood products producers support the
decision to designate Japan an unfair trader under U.S. law, but other
key business groups, who felt injured and threatened by Japanese competition in their own industries, also favored threatening Japan with
trade sanctions. Moreover, the U.S. executive, having tolerated policies advantaging the Japanese in the past, had by the mid-1980s
become increasingly concerned about the effects of Japanese industrial
targeting and trade restrictions on America’s competitive position in
the world economy. Out of concern for America’s economic well-being
and in response to congressional pressure, the Bush administration
decided to resort to a high-pro‹le trade weapon to dampen the effects
of Japan’s protectionist policies. The competitive nature of the trade
relationship between the United States and Japan thus helped to unite
major domestic actors. Domestic unity provided U.S. negotiators with
added leverage in bilateral negotiations, allowing them to negotiate
two trade agreements that yielded substantial bene‹ts to American
producers.
Supercomputers
In 1989, the United States initiated a Super 301 investigation into
Japanese practices in the supercomputer industry on the grounds that
Japanese policies designed to promote indigenous supercomputer production capabilities had excluded American producers such as Cray
Research and Control Data Corporation, which were very competitive
in world markets, from Japanese public procurements. Supercomputers drew the attention of U.S. negotiators both because of their important role in the most advanced research and development and because
U.S.–Japan Trade Conflicts
145
FIGURE 5.1. World semiconductor market, 1982–95 (selected years, in percentage of
shares). (Data from Semiconductor Industry Association, available at <http://www.siaonline.org/pre_statistics.cfm>.)
FIGURE 5.2. U.S. semiconductor market, 1982–95 (selected years, in percentage of
shares). (Data from Semiconductor Industry Association, available at <http://www.siaonline.org/pre_statistics.cfm>.)
of the substantial government support that was needed for supercomputer development.
Early American attempt to address Japan’s discriminatory procurement practices included the low-key Section 305 investigations and the
Market-Oriented Sector Speci‹c (MOSS) framework. Both initiatives
were designed to tackle government procurement practices that
allegedly discriminated against American producers and high dis-
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FIGURE 5.3. Japanese semiconductor market, 1982–95 (selected years, in percentage of shares). (Data from Semiconductor Industry Association, available at
<http://www.sia-online.org/pre_statistics.cfm>.)
counts that Japanese producers offered to government institutions.
These initiatives and subsequent American pressure propelled Japanese authorities to come up with an emergency budget to provide public universities with increased funding for supercomputer procurement
and resulted in the purchase of two American computers by Japanese
public institutions. In August 1987, the negotiators reached a ‹nal
agreement on supercomputers that made the public procurement
process in Japan more transparent.43 However, the agreement fell
short of addressing the discounting problem or establishing speci‹c
performance criteria.44 It was criticized also for its inability to break up
the preferential links between Japanese suppliers and their customers
in the public sectors or to substantially improve American ‹rms’ access
to the Japanese public market by altering the deeply entrenched structure of the Japanese public market.45 Not surprisingly, U.S. manufacturers complained that they faced continued dif‹culties selling to public institutions in Japan. Cray Research, in particular, pointed out that
its share of the Japanese market was substantially lower than its share
in other parts of the world.46 In light of American manufacturers’
dif‹culties of selling to the Japanese market, both Congress and the
industry urged the USTR to use the leverage provided by Super 301 to
enforce the market access agreement with Japan.
In early 1989, the supercomputer industry, citing the huge disparities
in their market access to Japan and other world markets, called on the
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147
government to address the discrimination they encountered in the
Japanese market. The announcement by NEC that it could now produce the world’s fastest supercomputer and the exit of Control Data
Corporation from the production of large-scale supercomputers in
April 1989 heightened the sense of urgency felt by the supercomputer
industry. Following the company’s demise, Control Data representatives warned that, since supercomputers were important not only as a
market in themselves but also as the means to developing other technologies and products, the United States would be in a very disadvantaged position to have to depend on its competitors for real value-added
or product differentiation.47 Other supercomputer manufacturers also
felt that the United States would need to take effective measures in
order to catch up with the Japanese.
At a congressional hearing, the Institute of Electrical and Electronics Engineers, Inc. (IEEE), an organization devoted to assisting the
government and the public with evaluating technological progress and
opportunities, alerted the administration to the vulnerability of the
U.S. industry to the competitive threats from Japan, arguing that the
“Japanese style of competition does present a signi‹cant threat to the
U.S. high-performance computing industry through its systematic, targeted dominance of successive elements of the high technology ‘food
chain.’”48 The organization contended that Japanese government support has been indispensable to Japan’s acquisition of indigenous production capabilities. Industrial policy not only helped Japanese ‹rms
to break up the American monopoly of the supercomputer market in
the early 1980s and to successfully penetrate the American market by
the mid-1980s but also created formidable barriers in the Japanese
market for U.S.–made supercomputers, which were clearly superior to
Japanese machines in terms of both performance and availability of
software. Re›ecting the concerns of American supercomputer manufacturers, the organization complained that the Japanese did not notify
their American counterpart of upcoming procurements, that Japanese
producers were given deep discounts, that the Japanese government
did not specify performance criteria in the bids, and that, even if they
did, the speci‹cations clearly favored Japanese producers.49 The organization further argued that, since Japanese manufacturers had extensive ‹nancial resources and were willing to spend large sums and
endure sustained losses to win market share, the United States must
take the Japanese threat seriously and adopt new approaches to
achieve an acceptable trading relationship with Japan.
Besides securing support from U.S. supercomputer manufacturers,
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threats to impose sanctions under Super 301 received positive
responses from the business community as a whole. Many business
groups within the United States felt victimized by unfair trade barriers
and by Japan’s one-way-street approach to trade, especially because so
many of them competed with Japan in the production of a similar
range of items. For instance, the AEA, one of the main actors in the
semiconductor saga, testi‹ed before a congressional trade panel in
favor of the Bush administration’s decision to brand Japan an unfair
trader under the 1988 trade law. Not only did the association have
strong grievances against Japan’s entrenched trade barriers that
excluded foreign competition, including Japanese government procurement policies and preferential purchasing arrangements among
Japanese ‹rms, but it was also critical of Japan’s restrictive trade practices, which enabled Japanese companies to capture an increasingly
large share of the U.S. market and overtake American producers as the
leader of technological advance. The AEA pointed to the semiconductor market as an example of a sector in which unfair Japanese trade
policies worked to the detriment of the U.S. industry and welcomed the
administration’s move toward an aggressive negotiation approach
with Japan.50
Many other business groups likewise supported the results-oriented
approach included in the Super 301 provision and pressured the Bush
administration to take a hard line in implementing Super 301. In a congressional hearing, the U.S. manufacturing community exhibited a
broad willingness to stand by the stance adopted by the Bush administration, which they considered both responsible and pragmatic. The
AEA, for example, expressed its satisfaction with the way the USTR
dealt with the supercomputer issue. NAM testi‹ed that “the administration has done a masterful job” in enforcing American trade law.
NAM supported the administration’s decision to designate Japan a
priority foreign country, indicating that it was concerned about the
manufacturing component of the U.S.–Japan economic relationship
and the serious Japanese rivalry facing American companies.51 The
U.S. Chamber of Commerce also approved of the sanction threat.52 In
a formal comment to the USTR, dated March 24, 1989, the U.S.
Chamber of Commerce provided a list of “priority trade barriers and
distortions,” charging Japan with “targeting” a wide range of American industries through “administrative guidance, public procurement
and restrictive business practices.” Japanese of‹cials, the American
business organization argued, offered commercial “suggestions” and
“advice” to businesses and public organizations over which they had
U.S.–Japan Trade Conflicts
149
regulatory jurisdiction. The Chamber of Commerce charged that, since
the Japanese government possessed “broad authority to provide or
deny loans,” those of‹cial suggestions constituted “implied threats” to
deny government bene‹ts or impose new restrictions on businesses
that did not accept the advice. The result of these government actions
was that Japan imported fewer manufacturers than it would if its markets were as open as those of other developed countries.53
The business community’s enthusiasm for trade sanctions dovetailed with the Bush administration’s determination to pursue a fair
trade outcome for the supercomputer industry. The administration’s
willingness to intervene was rooted in a number of considerations.
First, the supercomputer industry was considered strategic because it
could yield extremely high pro‹ts, produce bene‹cial spin-offs, and
create knowledge that was useful to other sectors of the economy. As
supercomputers were widely applied to solving problems involving
complicated mathematical calculations such as weather and earthquake modeling, aerospace design, and crash analysis, failure to intervene to ensure the health and size of the industry could have broader
implications for the U.S. economy.54 Second, government action was
considered necessary because of the supercomputer industry’s importance to national defense and security. Supercomputers played an
important role in a number of defense programs, including the Energy
Department’s nuclear weapons program and NASA’s aerospace program. The undercutting of the supercomputer industry could therefore
increase U.S. reliance on foreign supplies. Third, opening up the
Japanese procurement market was considered essential for American
producers to achieve maximum cost competitiveness and pro‹tability
and to head off Japanese competition in the United States and in the
world market in the long run.55
In short, Bush administration of‹cials believed that Japan’s closed
supercomputer market lent credence to the argument that Tokyo was
targeting speci‹c high-tech industries, keeping imports out to shelter
domestic industries from the effects of foreign competition. They
argued that if Washington waited until Tokyo succeeded in this
endeavor to intervene, Japanese buyers would have already established
stable relations with Japanese suppliers and, consequently, it would be
even more dif‹cult for American producers to gain a foothold in the
Japanese market. While the United States had sought to establish a liberal trading order for most of the postwar period, the trade problem
with Japan had become so intractable that many administration
of‹cials called for a new approach toward Japan. Moreover, in the
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presence of a large U.S. trade de‹cit with Japan and with many domestic actors from Silicon Valley to Capitol Hill calling for retaliation
against Japan’s one-sided trading practices that imperiled U.S.
strength in key industrial and technological markets, the Bush administration felt compelled to respond with a more proactive trade policy.
Thus, the designation of satellites and supercomputers under the Super
301 framework was perceived as a means for the United States to challenge Japan’s strategy of building a protected home market in selected
high-tech industries.56
To be sure, some administration of‹cials were initially concerned
about the political and diplomatic rami‹cations of citing Japan as an
unfair trader. While the USTR and the Commerce Department urged
the president to adopt an aggressive approach to enforce U.S. trade
law, several other departments had some reservations about taking a
harsh stance on trade with Japan. The president’s chief economic advisor, Michael Boskin, and budget director Richard Darman, for example, warned that targeting Japan, one of America’s most important
trading partners and an ally in Asia, could lead to a trade war, damaging broader U.S. interests. Similarly, the State Department, the NSC,
and the OMB warned that citing Japan for trade violations could harm
the alliance relationship with Japan.
But trade of‹cials and White House political advisers eventually
managed to persuade the State Department and other agencies that
were reluctant to designate Japan as an unfair trading partner to go
along with a tough approach on trade. Their rationale was that, while
citing Japan as an unfair trading partner could have some negative
impact on relations with Japan in the short run, the action could produce some long-term bene‹ts and indeed could help to strengthen ties
between Tokyo and Washington by forcing the two sides to pay closer
attention to enduring trade problems. These of‹cials further cautioned
about the potential of a direct confrontation with Congress, a scenario
that could lead Congress to attempt to reduce executive discretion over
the Super 301 process in the future and thereby undermine the Bush
team’s preference for consultation and compromise with the legislature
on major public policy issues.57
Because of the trade of‹cials’ strong support for Super 301 designation, and in light of the festering trade problem with Japan, agencies
such as the State Department and the NSC, which had previously spoken in favor of Japan, eventually consented to President Bush’s decision. They came to realize, albeit with some reluctance, that some
tough executive action was needed to placate Congress and that eco-
U.S.–Japan Trade Conflicts
151
nomic concerns were gaining prominence in foreign policy. In other
words, the threat posed by Japan’s unfair competition exerted
suf‹cient pressure on of‹cials concerned about the bilateral security
relationship to modify their position on Super 301. With such a broad
internal consensus, the Bush administration was able to proceed with
the Super 301 designation. In May 1989, USTR Carla Hills announced
the decision to designate Japanese government procurement as a priority practice under Super 301.58 In June the USTR initiated an investigation under Section 302 of the 1988 Trade Act.
U.S. pressure, backed by a strong domestic consensus, soon began
to elicit a positive response from the Japanese, as Tokyo agreed to limit
academic discounts to government entities to 50 percent, to substantially increase the ‹scal 1990 budget for public supercomputer procurement, and to convince the NEC to withdraw from a public bidding.59 In March 1990, shortly before the scheduled deadline for
designating Japan as a priority foreign country, the United States and
Japan announced a new agreement on supercomputers that represented a signi‹cant improvement over the 1987 agreement.60 The 1990
agreement was considered a partial success by U.S. supercomputer
manufacturers, as it addressed structural barriers to the Japanese market, leading to short-term market-opening outcomes for American
producers.61 Importantly, of the nine public procurements Japan conducted under the supercomputer agreement between 1991 and 1992,
Cray Research did not bid on four contracts, lost two to Japanese
‹rms, and won three competitions.62 According to some analysts,
intervention by the Japanese government contributed to the temporary
increase in Cray Research’s share of the Japanese market.
The long-term effects of the 1990 supercomputer agreement might
have been somewhat ambiguous, given the entrenched preferential
arrangement between Japanese suppliers and their public-sector customers and the distinctive economic structure created by Japan’s longtime promotional policies. Remaining concerns with Japanese practices in the supercomputer industry led the USTR in April 1993 to
open a review of the agreement under Section 306 of the 1988 Trade
Act that nevertheless found, on a positive note, that American ‹rms
had supplied six of the ‹fteen supercomputers Japan purchased
between 1991 and 1992. Although Cray Research had lingering concerns about a number of Japanese public procurement practices and
other problems with the implementation of the agreement, the supercomputer agreement had gone a long way toward sustaining the competitiveness of the supercomputer industry. On the whole, it is fair to
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say that the 1990 agreement yielded signi‹cant bene‹ts to American
producers.63
Satellites
Similar to the supercomputer dispute, the Super 301 case against satellites grew out of Japanese policies of industrial targeting in high-technology that allegedly denied American ‹rms the bene‹ts of a free market. In an attempt to reduce technological reliance on the United
States, the Japanese government actively intervened in the market to
promote an autonomous space industry. As part of this promotional
strategy, the National Space Development Agency of Japan (NASDA)
maintained tight control over market access by channeling all government satellite procurement to Japanese ‹rms, prohibited the procurement of all kinds of satellites, and banned the procurements of Japan’s
telecommunications giant, NTT, despite the lower price and superior
quality of foreign satellites.64 Due to these policies, Japanese content in
communications satellites increased from 24 percent in 1977 to 80 percent in 1988 and local content in broadcast satellites grew from 14 to 83
percent during the same period of time.65
But while the aforementioned policies contributed to the rapid
development of an autonomous space industry, they also became a
prominent source of trade frictions with the United States. Following
the announcement of the “Long-Range Vision on Space Development” in 1983, which forbade procurement of foreign satellites, U.S.
negotiators on various occasions expressed their concerns about
Japanese government discrimination against U.S. aerospace ‹rms.66
While Tokyo made some concessions,67 these gestures ultimately failed
to placate American negotiators, who pointed out that Japan continued to ban government agencies from purchasing foreign satellites and
that it was targeting space industries for commercial development.68
These grievances led the Bush administration to consider designating
Japan as a priority country under Super 301 in 1989.
The Bush administration provided the crucial impetus for the satellite designation. Because prior American pressure had already opened
up a private market in Japan in favor of American ‹rms, and aware
that challenging Japan’s strong commitment to space development
would most likely lead to a political con›ict, American of‹cials might
well have chosen to use bilateral discussions and private diplomacy to
persuade Japan to further liberalize its public market. Nevertheless,
the incoming Bush team eventually decided to invoke threats of sanc-
U.S.–Japan Trade Conflicts
153
tions under the Super 301 provisions of the Omnibus Trade and Competitiveness Act of 1988 for fear that Japan would use its closed
domestic market as a strategic base to catch up to, and to eventually
surpass, the United States in this strategically important high-technology industry.
As Michael Mastanduno points out, concerns about the possible
erosion of the competitive edge of the U.S. space industry vis-à-vis
Japan ‹gured prominently in the Bush administration’s decision to
designate satellites as a Super 301 target. By the late 1980s and early
1990s, many observers had reached a consensus about the long-term
threat that the Japanese government’s promotional policies posed to
the U.S. lead in the space industry. Through its active collaboration
with Japanese ‹rms and its support for research and development, the
Japanese government effectively executed policies of industrial targeting, creating a captive government market that allowed its ‹rms to
reduce costs and diffuse technology. As Japan had pursued similar
strategies in other sectors such as semiconductors, consumer electronics, ‹ber optics, and aircraft, there was a widespread fear in the United
States that satellites could be one of the key industries in which Japan
aimed for world leadership. To forestall the loss of market share and to
prevent Japan from achieving greater gains than the United States, the
Bush administration turned to Super 301 in an effort to preempt
Japan’s ascent in space development.69 That Japanese barriers to satellite purchases were fairly transparent and constituted a clear violation
of the rules of free trade provided greater justi‹cations for government
intervention. In addition, targeting satellites could also complement
and reinforce American efforts to eliminate trade barriers in the multilateral negotiations in the Uruguay Round.70
Because of these considerations, the Bush administration was able
to achieve remarkable cohesion on the satellite issue. The trade agencies, notably the USTR and the Commerce Department, strongly
favored using threats of trade sanctions to protect the long-term economic interests of the United States and to enhance the credibility of
the executive in the eyes of the Congress. The leading proponents of
the satellite designation within the U.S. administration—Deputy
USTR Lynn Williams, Assistant USTR Joseph Massey, and Commerce Undersecretary J. Michael Farren—saw the designation as providing an excellent opportunity to preempt Japanese targeting of an
important high-technology industry in which the United States
enjoyed a strong competitive advantage.71 In a testimony before the
Senate Commerce Committee in October 1989, Farren contended that
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To the Japanese, satellites are not only an industry unto itself but a
window on the whole space industry for the 21st century. Japan is
emerging as a key participant in the global aerospace industry, a
result of deliberate decisions aimed at establishing a world-class
Japanese aerospace industry. Japan is looking to aerospace as a
source for its future growth and prosperity. . . . Our National Aeronautics and Space Administration has pointed out in a recent report
that space is a new economic frontier, and that space commerce is
directly linked to American competitiveness in the global market.72
Similarly, Deputy USTR Williams argued that, in line with Congress’s intent in drafting the Super 301 provision, eliminating the barriers in the satellite industry “would have the potential to increase U.S.
exports signi‹cantly, both directly and by setting a precedent.”73 Trade
of‹cials thus recommended to the president that he take a hard line
against Japan on the satellite issue. Although the State Department,
with its characteristic concerns about the overall U.S.–Japan relationship, and agencies such as the CEA and the OMB, which were traditionally less receptive to the use of Section 301 provisions in general,
were initially opposed to the designation of satellites, they eventually
gave approval to the president’s decision to go ahead because they too
had concluded that Japanese government restrictions were so pervasive as to pose a real threat to America’s industrial competitiveness.74
In short, as in the semiconductor case, the perceived threat of
Japanese industrial targeting to the viability of the U.S. space industry
was so grave that it overcame the considerations of the traditionalists
and the defense personnel for political relations and free trade. In the
end, even though the more free trade–inclined OMB and CEA insisted
that they could not accept a managed trade approach specifying a certain market share for American ‹rms, they came out in favor of using
Super 301 to target Japanese government’s discriminatory procurement practices. This internal consensus reinforced Congress’s insistence on a tough line against Japan, substantially enhancing the credibility of the American action.
In this case, U.S. satellite makers reportedly refrained from openly
pushing for Super 301 designation for fear of losing potential sales or
leasing opportunities to the Japanese private sector and government
institutions. Satellite manufacturers also seemed to be concerned
about upsetting Japan’s Ministry of Post and Telecommunications
(MPT), which oversaw the licensing of satellite imports.75 However,
they obviously did not interfere with a decision promising substantially
U.S.–Japan Trade Conflicts
155
improved access to the Japanese market. Furthermore, the decision
received overwhelming support from broad sectors of the U.S. manufacturing community that were also severely injured by Japanese competition. At a key Senate trade panel, groups representing a wide range
of U.S. manufacturers asserted that the complex web of relationships
among Japanese manufacturers, distributors, and retailers posed
signi‹cant barriers to American producers’ efforts to penetrate the
Japanese market. NAM once again opined that Japan’s distribution of
goods and corporate buying policies presented one of the biggest
obstacles to U.S.–Japan trade and welcomed the action on satellites,
which in their view effectively signaled the government’s determination
to open up the Japanese market.
A large number of business organizations, all of which faced intense
Japanese competition, favored invoking sanction threats under the
Section 301 provisions of the Omnibus Trade and Competitiveness Act
of 1988 to obtain a fair trade outcome. For example, the AEA, an
organization representing over thirty-‹ve hundred ‹rms in the U.S.
electronics industry, including components, computers, telecommunications, and software, went on record supporting administrative
actions to designate Japan an unfair trader. The AEA argued that
Japan’s exclusionary business practices created tremendous barriers
and distortions to U.S. electronics trade and referred to the United
States’ steadily deteriorating de‹cit with Japan in the electronics sector
and the substantial damage done by Japan to various segments of the
U.S. electronics industry as evidence of the structural problems in the
U.S.–Japan relationship. The association urged the administration to
resort to aggressive negotiation strategies to address such outright hindrances to free trade.76
NAM and the Chamber of Commerce expressed their strong support for Super 301 designation at the same hearing. NAM, which contributed 85 percent of employment in manufacturing and 80 percent of
America’s manufactured goods, asserted that it was essential that the
administration name Japan a priority foreign country under Super 301
as a response to the profound Japanese challenge to U.S. international
competitiveness. NAM representatives argued that Japan’s ban on
government procurement of satellites raised important questions for
U.S. trade policy. They contended that, if Japan’s “indigenous development objectives” could take precedence over free trade in particular
products, then the United States needed to clearly identify its own
“indigenous development objectives” and to ask how these development objectives could be affected by Japan’s trade policies. Accord-
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Trade Threats, Trade Wars
ingly, NAM urged American negotiators to forcefully enforce existing
trade law in order to defend U.S. trade interests.77 Similarly, the U.S.
Chamber of Commerce, taking into account the magnitude of trade
distortions with Japan, called on the Bush administration to “more
aggressively assert its legitimate trade rights,” arguing that the aggressive use of Super 301 procedures would “bene‹t not only U.S.
exporters but also exporters from third nations,” as well as manufacturers and consumers “in restricted markets who pay higher prices as a
result of trade restrictions.”78
Also testifying at the hearing were the Automotive Parts and Accessories Association (APAA) and the United Automobile, Aerospace,
and Agricultural Implement Workers of America (UAW). The APAA,
representing various segments of the U.S. auto parts industry, welcomed the administration’s more aggressive approach to redress the
trade balance with Japan. Because APAA member ‹rms, which were
capable of producing competitively priced, world-class automotive
parts, have long been af›icted with the deluge of exports of cars and
parts from Japan, they supported Super 301 retaliatory action, which
could demonstrate U.S. resolve and set the tone for future trade negotiations. In a similar fashion, the UAW recommended Super 301 trade
retaliation, arguing that it would be the ideal forum in which to address
the trade imbalance. The UAW contended that the United States
should use the threat of retaliation to stimulate negotiations about
other structural impediments to trade and that downplaying the Super
301 process would continue to expose American workers and manufacturers to the pernicious effects of Japan’s unfair trading practices.79
Such overwhelming industry support lent greater credence to the
Bush administration’s threat of retaliation, clearly revealing Washington’s willingness to apply existing trade remedies to force Japan to the
negotiation table for serious, comprehensive negotiations. Enormous
U.S. pressure left Japan with little room for maneuver but to gradually
come to terms with U.S. demands. The satellite agreement that came
into being in June 1990 re›ected the extent to which sanction threats succeeded in opening Japan’s highly protected domestic satellite market.
The 1990 satellite agreement was the product of several rounds of
strenuous negotiations. The negotiations were rocky at times because
the United States “basically was telling Japan that it had to give up its
quest to become a competitor in the world market for applications
satellite.”80 In other words, American demands were perceived as an
outright encroachment upon Japan’s sovereign right to develop an
autonomous space program with noncommercial objectives. Never-
U.S.–Japan Trade Conflicts
157
theless, Tokyo eventually agreed to such sweeping changes, even
though many Japanese observers considered the 1990 agreement as
representing “a complete acceptance of American demands.”81
Speci‹cally, Tokyo undertook in the agreement to open its communications satellite and all other commercial satellite markets to U.S.
imports. The loss of the communications satellite program was judged
to be likely to entail substantial short-term costs for Japanese producers and to accentuate the dif‹culties Japan faced in developing key
satellite technologies, as Japan was forced to cancel its plans for the
development of the fourth series of its communications satellite program (CS-4). That the agreement applied not only to communications
satellites but also to all commercial satellites led the MPT to the
gloomy conclusion that the “severity of the settlement was beyond
expectations.”82
The 1990 agreement yielded substantial gains for American producers, as American companies such as Loral Space Systems, Hughes Space
and Communications Group, and GE successively won bids to supply
satellites to Japanese ‹rms. Moreover, the agreement not only denied
Japanese ‹rms the bene‹t of a captive government market but also
helped to maintain and strengthen American communications satellite
manufacturers’ dominant position in the global market.83 American
satellite producers were thus by and large satis‹ed with such an agreement that represented substantial ful‹llment of U.S. negotiation objectives. In the words of a Hughes Space and Communications Group representative, the agreement “open[ed] a few more opportunities,” and,
more important, it prevented Japan from sheltering “an infant industry
that might eventually become a world-class competitor.”84
Forest Products
Initiated at the same time as the supercomputer and satellite cases, the
Super 301 designation against Japanese practices in forest products
was intended to address the entrenched market barriers in the Japanese
wood products market. Throughout the negotiations, U.S. industry
and government of‹cials sought to pressure Japan not only to reduce
its formidable array of nontariff, technical barriers (such as building
codes, product standards, and testing and certi‹cation procedures),
which clearly violated GATT principles, but also to signi‹cantly lower
tariffs and to scale back subsidies to the Japanese forest industry.85 The
dispute was the natural culmination of a decade-long U.S. attempt to
address the multitude of tariff and nontariff barriers that resulted in a
158
Trade Threats, Trade Wars
highly skewed pattern of trade and consumption in the Japanese wood
products market and turned out to be one of the largest Super 301
cases ever initiated against Japan.
Throughout the course of the negotiations, American producers
repeatedly raised concerns that Japanese trade in forest products was
strongly biased in favor of raw materials at the expense of ‹nished
products.86 A related complaint was that, as the world’s largest
importer of wood products and as the largest wood products market
for the United States, Japan nevertheless had the lowest per capita consumption of wood products among industrialized nations. American
forest products manufacturers readily pointed out that, since Japanese
production of fabricated products was highly inef‹cient, it would be
dif‹cult to explain Japan’s unusually high ratio of raw to ‹nished
imports of wood products without taking into account the excessive
trade and regulatory impediments that existed in Japan.87 They further
contended that, without those market barriers, American producers
would likely accrue between $1 and $2 billion in additional income
each year through increased exports of processed wood products to
Japan.88
Of all the alleged market impediments, Japan’s tariff structure in
particular drew the ire of the U.S. industry, as Japanese tariff rates on
wood products were positively related to the level of fabrication,
resulting in a situation in which Japanese producers needed to pay no
or little tariffs on the imported raw material but could nevertheless rest
assured that they could easily survive foreign competition through the
rents generated by high tariff levels on ‹nished products. In other
words, this escalation of tariffs led to rather high “effective rates of
protection.”89 U.S. industry representatives maintained that, should
Japan dismantle its tariff barriers, many inef‹cient Japanese producers
would be forced to exit the industry, leading to substantially increased
demands for imports. Besides tariff barriers, American industry representatives were concerned about a number of nontariff barriers,
including discriminatory product standards, overly restrictive building
and ‹re codes, government subsidies for inef‹cient producers, and lax
enforcement of antimonopoly laws against cartels.90
Beginning in the late 1970s, American government of‹cials began
efforts to address wood products market barriers via both informal
negotiations and more formal negotiation forums such as the MOSS
talks. The MOSS talks in particular produced a bilateral “consensus”
in January 1986 with some modest Japanese concessions.91 Yet while
American producers viewed these Japanese commitments as represent-
U.S.–Japan Trade Conflicts
159
ing an important step in peeling off the onionlike layers of the Japanese market, they demanded even further progress along these lines.
Thus, in early 1989, both the forest products industry and Congress
applied strong pressure on the Bush administration to designate
Japanese wood product market barriers a priority under Super 301. As
the association representing the vast majority of the forest products
industry, the National Forest Products Association (NFPA) naturally
became the leading advocate of the Super 301 case. NFPA’s call for
Super 301 designation was strengthened by strong support for government action stemming from congressional members of both parties. As
representatives of major wood-exporting states, Senators Robert
Packwood (R-OR) and Max Baucus (D-MT) were the two most vocal
advocates of Super 301 designation in Congress. The two senators
were able to bring their in›uence over trade policy, derived from their
appointments as chairmen of congressional committees with primary
jurisdiction over trade policy, to bear on the decision-making process.
In April, Senator Packwood commissioned a study entitled The Japanese Solid Wood Products Market. The report, which provided a comprehensive survey of market impediments in the Japanese wood products market, concluded that it would be nearly impossible for the
United States to liberalize the Japanese market short of a major trade
initiative.92 On May 16, Senators Baucus and Packwood sent a letter,
signed by thirteen senators, to President Bush making a strong plea for
a Super 301 case. Pointing to the substantial additional gains in exports
that American producers would be able to capture through trade liberalization, the letter stated that the Super 301 procedures were designed
precisely to deal with entrenched market barriers such as those posed
by the Japanese practices in forest products. Throughout the rest of the
negotiations, congressional members of both parties continually raised
the specter of congressionally mandated retaliation should the Japanese fail to concede to the basic American demands. The Senate
Finance Committee under Senator Baucus was particularly irate at
Japan’s neglect of American demands, threatening to initiate legislative bills authorizing retaliation against Japan if bilateral negotiations
failed to produce any progress.93
Under strong industry and congressional pressure, USTR Carla
Hills announced the decision to designate Japanese technical barriers
on wood products that clearly discriminated against American exports
and violated the GATT Agreement on Technical Barriers to Trade
(also known as the Standards Code) as a Super 301 priority. Since the
designation applied only to technical barriers to the exclusion of more
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Trade Threats, Trade Wars
transparent tariffs, which were a clear priority of the U.S. industry, it
immediately spurred forest products manufacturers into active opposition. At a congressional hearing held in June 1989, the NFPA made a
strong case for extending the Super 301 designation to cover nontariff
as well as tariff barriers. The NFPA sought to persuade the USTR
that, since Japan maintained multiple layers of protection for the forest industry and that peeling away one layer might simply expose
another layer of protection, it was important for the United States to
incorporate a multitude of objectives in the negotiations and to simultaneously tackle tariff and nontariff barriers in Japan.94
To back up its argument, the NFPA reiterated its concerns about
Japan’s high effective rates of protection on ‹nished products as well
as excessively restrictive and discriminatory Japanese building codes
and Japanese product standards based primarily on design instead of
performance criteria. The association strongly criticized the Japanese
government’s decision to offer more than $1 billion in subsidies to the
domestic industry, a move that served to offset the liberalization effects
of concessions offered during the MOSS talks. The NFPA once again
brought to the attention of government administrators a variety of
structural impediments maintained by the Japanese, ranging from
anticompetitive practices, customs misclassi‹cation, land use and
housing policies, to the distribution system.95 Previously member ‹rms
within the NFPA held divergent views about what constituted the best
strategy to liberalize the Japanese wood products markets due to the
different export market niches they held. By the time of the Section 301
designation NFPA member ‹rms had successfully reconciled their differences to reach a consensus on the desired negotiation tactics. Also
supportive of the NFPA’s negotiation position were other smaller
industry associations or special organizations formed speci‹cally in
response to the Japanese challenge in the wood products sector such as
the American Plywood Association, the Wood Products Sector Advisory Committee, and the Alliance for Wood Products Exports. Individual wood products manufacturers such as Georgia-Paci‹c Corp
and Contact Lumber, which shared the same concerns about the
Japanese forest products market as the NFPA, have similarly rendered
active support for the NFPA’s push for Super 301 designation.96
Other U.S. businesses outside of the forest products industry viewed
the designation positively as well. As mentioned earlier, out of their
frustration with Japan’s increased penetration of the American market
and with the dif‹culty of gaining a greater foothold in the Japanese
market, many U.S. businesses regarded the Super 301 process as a key
component of a more systematic approach to addressing foreign trade
U.S.–Japan Trade Conflicts
161
barriers. For instance, with many of its member companies severely
battered by Japanese competition, NAM contended that the Super 301
process should put Japanese companies squarely in the spotlight.
NAM representatives, believing that Japanese competition undercut
America’s position in the world market, stated that failure to name
Japan “would have rendered the concept of priorities all but meaningless.”97 The AEA, with a steadily rising trade de‹cit with Japan reaching $20 billion a year in the mid-1980s, listed a wide array of structural
barriers that American electronics manufacturers faced in the Japanese
market. While the AEA supported the administration’s decision not to
target structural impediments in the Japanese electronics market as
Super 301 priorities, it urged the government to use other means at its
disposal to address structural problems and promised to work closely
with the government to reach satisfactory solutions to the existing
Super 301 issues.98 The Chamber of Commerce, re›ecting the interests
of many of its member ‹rms, urged the administration to name systemic, transsectoral trade barriers in an attempt to assert America’s
legitimate trade interests.
Congressional support for the results-oriented approach further
bolstered the business community’s advocacy for a tough bargaining
approach. In particular, there existed a prevailing sentiment in Congress that the Super 301 process had been underutilized by past administrations and that failure by the executive branch to narrow the huge
trade de‹cit with Japan would leave Congress with no choice but to
implement independent legislative action. Constant congressional
threat to legislate an even tighter and less discretionary Super 301
process also forced the Bush administration to accommodate business
interests in the decision-making process to avoid an open confrontation with the legislature and to preserve the administration’s overall
preference for consultation and compromise with the Congress on
major public policy issues.
With the U.S. industry and Congress running out of patience, the
USTR accelerated the negotiations with the Japanese. An important
tactic American negotiators adopted toward this end was to try to cultivate the support of Japanese ministries less hostile to American
demands. For instance, they devoted considerable effort garnering
support from the Ministry of Agriculture, Forestry, and Fisheries
(MAFF) for relaxing the restrictions in the building code to allow the
greater use of both domestic- and foreign-made wood products in construction projects. U.S. negotiators also pitched their message to
Japanese consumers about the substantial bene‹ts they would derive
from less expensive and more aesthetic wood housing.99
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Trade Threats, Trade Wars
Highly leveraged government and industry pressure prodded the
Japanese into action. On April 25, 1990, shortly before the April 30
deadline that the USTR set for announcing Super 301 priorities for
1990, USTR Carla Hills announced the decision to refrain from naming Japan a priority country for a second time. While Japan’s desire to
avoid being named a priority country for a second time loomed large in
its decision to capitulate at the last minute, unrelenting industry and
congressional pressure made it all the more palpable that the United
States would carry through with its threats to impose sanctions against
Japan. The prospect of a trade war that would seriously hurt Japanese
manufactured products as well as the U.S.–Japan economic and political relationship induced Tokyo to reluctantly concede to American
demands.
In the agreement that the U.S. negotiators reached with Tokyo,
Japan agreed to liberalize tariffs, in particular tariffs on high valueadded products; address customs misclassi‹cations; and reduce the
tariffs on certain laminated products, concessions estimated to
increase American exports by $100 million.100 With respect to nontariff barriers, Japan agreed to accept the performance-based criteria in
its building code, to acknowledge the validity of foreign test data in
specifying new product standards, to increase the transparency and
speed of the certi‹cation process, and to modify the building and ‹re
codes so as to increase the volume of wood products being used in construction projects. In addition to these concessions, the agreement
addressed the subsidy issue and provided for the establishment of technical committees both to monitor implementation and to facilitate dispute resolution.101
The 1990 agreement went a long way toward addressing industry
and congressional concerns about Japanese market barriers in the forest products industry. U.S. industry of‹cials were particularly pleased
with the agreement’s potential to substantially increase American
exports to the Japanese market. Since the agreement provided a clearly
spelled-out schedule of implementation, established special committees responsible for monitoring implementation, and created built-in
mechanisms for coordinating building standards, industry and congressional reactions to the agreement were overwhelmingly positive.
NFPA and the forest products’ Industry Sectoral Advisory Committee
viewed the agreement as representing a major step in America’s drawnout effort to pry open the Japanese market, even though they reminded
the government to back up such actions with both multilateral and
bilateral measures to tackle nontariff barriers in the Japanese market.102 Senators Baucus and Packwood also applauded the agreement
U.S.–Japan Trade Conflicts
163
for opening markets and creating jobs for the United States. By the
mid-1990s, American exports to Japan had picked up momentum.
Consequently, American government and industry of‹cials remained
satis‹ed with the implementation of the agreement, although further
improvements were considered necessary in several issue areas. Overall, they were cautiously optimistic about the potential for increased
U.S. forest product exports to Japan.
Japanese Reactions to the Super 301 Process
In each of the Super 301 investigations described in this chapter, sustained and uni‹ed American pressure clearly conveyed to the Japanese
the message that sanctions would be forthcoming if no concessions
were made, thus forcing Japanese government and industry of‹cials to
reevaluate their optimal course of action and to make concessions that
would have been unthinkable in the absence of foreign pressure.
Such dynamics were clearly to be found in each of the three sets of
Super 301 negotiations. According to an insider’s account of the negotiations over wood products, there existed “an unmistakable impression” among Japanese negotiators that American demands on the
wood products issue enjoyed strong support from American log lobbyists.103 An interview with a Japanese of‹cial involved in the talks
suggested that the Japanese did take the American threat seriously in
light of the overwhelming support for sanctions coming from both
Capitol Hill and diverse quarters of the American business community. Given the impression that all U.S. actors were ‹rmly behind the
USTR, the Japanese consequently felt that it was important to relieve
the pressure from the United States by resorting to a “crisis management” approach.104 The negotiations over semiconductors and supercomputers illustrate this dynamic. As an of‹cial of the Ministry of Foreign Affairs involved in the negotiations put it:
There was a consensus among the Japanese ministries to do the
agreement to protect the U.S.-Japan relationship. SII [the Structural Impediments Initiative talks] did not go well. Trade ‹gures
were bad. It was crisis management. The United States threatened
retaliation under Super 301; without that threat, many ministries
would not have gone along.105
Thus, while the Japanese were concerned about the damage that the
trade row could in›ict on the U.S.–Japan relationship and were trying
their best to contain the fallout of the dispute, their perception of a
164
Trade Threats, Trade Wars
“crisis” stemmed above all from the strong U.S. resolve. Absent the
perception that American trade of‹cials both were intent on carrying
out the threat and had the necessary domestic support to do so, the
Japanese most probably would not have been able to reach a consensus to “do the agreement” in order to diffuse the crisis.
Moreover, as the Super 301 case coincided with the launching of the
Structural Impediments Initiative (SII), Japanese politicians concentrated most of their attention on the SII talks, thus allowing the
bureaucrats to take charge of the Super 301 negotiations. In addition,
the media in Japan did not provide suf‹cient coverage of the Super 301
negotiations. That neither the politicians nor the media was actively
involved in the Super 301 talks might have prevented the active use of
strategies such as “participation expansion” to expand the “possible
zone of agreement” for the Americans. Aware that some concessions
had to be made, the Japanese strategy revolved around maximizing
chances of obtaining a better deal by aggressively proposing alternatives and by taking a forthright position on most issues in order to
establish better rapport with American negotiators.106 But these strategies were clearly based on the assumption that some concessions had to
be made and so represented only tactical moves by the Japanese to
temper the repercussions of concessions.
Conclusion
The semiconductor and Super 301 cases described in this chapter
demonstrate very similar political dynamics. In all four cases, not only
were domestic interest groups united in support of sanction threats,
but also the Reagan and Bush administrations showed a greater willingness to put aside the principle of free trade and to intervene on
behalf of American industry. Such strong domestic pressure meant
that the Japanese could no longer be secure in the knowledge that the
United States would tolerate Japan’s protectionist policies in the name
of preserving the alliance relationship. Domestic unity strengthened
the credibility of American threats, inducing Tokyo to make costly
concessions that would threaten the interests of its powerful ‹rms.
As we can see from table 5.1—which lists the position and impact of
the exporters, import-competing interests, and import-users involved in
each of these trade disputes—American threats to impose sanctions on
Japan enjoyed wide support from domestic interest groups. Most
importantly, American semiconductor, supercomputer, satellite, and
Supercomputers,
Satellites, and
Forest Products
Directly Affected
Exporters
Import-Using
Interests
Import-Competing Interests
Exporters Not
Directly
Affected
Supercomputer manufacturers (Cray
Research, Control Data Corporation); Institute of Electrical and Electronics Engineers; satellite manufac-
Semiconductor users represented by
AEA
Many of these are also import-competing interests, including producers of
electronics, automobiles, and machine
tools; American Electronics
Association
Producers of electronics, automobiles,
machine tools; American Electronics
Association
Semiconductor Industry Association
(representing firms such as AT&T,
IBM, and TI)
Companies and Associations
Charged that Japan, through policies
designed to cushion domestic industries from foreign competition,
excluded U.S. producers from the
Faced stiff Japanese competition and
demanded tough action from the U.S.
government to dampen the effects of
unfair Japanese competition.
Concerned about the price increases
that trade sanctions would produce.
Contended that Japan's protectionist
and promotional policies denied
American firms “fair and equitable
market opportunities.” Called on the
USTR to use trade sanctions to correct Japan's predatory export behavior and market barriers and to stop
Japanese dumping in the American
market.
Frustrated with entrenched market
access barriers in Japan; supported
trade sanctions that would help U.S.
firms pry open the Japanese market.
Position
Profiles of Main Actors Involved in U.S.– Japan Semiconductor and Super 301 Cases
Semiconductors
Directly Affected
Exporters
TABLE 5.1.
(continued)
Were instrumental in initiating the dispute; their aggressive pursuit of policy
demands increased the pressure U.S.
policymakers felt to act.
Their support for tough negotiation tactics reinforced the appeal of semiconductor manufacturers' policy
demands.
Eventually endorsed semiconductor
producers' position.
Helped bolster the SIA demand.
Were instrumental in initiating the dispute; their aggressive pursuit policy
demands increased the pressure U.S.
policymakers felt to act.
Impact
Import-Using
Interests
Import-Competing Interests
Exporters Not
Directly
Affected
Companies or Associations
turers; forest products industry (represented by the National Forest Products Association, American Plywood
Association, and Alliance for Wood
Products Exports, etc.)
Many of these were also import-competing interests; representative organizations included the American Electronics Association, National Association
of Manufacturers; U.S. Chamber of
Commerce; Automotive Parts and
Accessories Association
American Electronics Association (representing over 3,500 firms in U.S.
electronics industry, including components, computers, telecommunications, and software); National Association of Manufacturers; U.S.
Chamber of Commerce; Automotive
Parts and Accessories Association;
United Automobile, Aerospace and
Agricultural Implement Workers of
America
—
TABLE 5.1.—Continued
—
Urged American negotiators to forcefully enforce existing trade law in
order to defend legitimate U.S. trade
interests and to correct the effects of
unfair Japanese competition.
Faced considerable market access barriers in Japan; supported aggressive
market opening policies in general.
Japanese market; advocated trade
sanctions to open the Japanese public
sector market.
Position
—
Their support for tough negotiation tactics reinforced the appeal of supercomputer and satellite manufacturers'
policy demands.
Bolstered the case for Section 301
action.
Impact
U.S.–Japan Trade Conflicts
167
forest product producers, whose competitiveness was directly threatened by Japanese government’s protectionist and promotional policies,
were not the only groups in the United States supporting the aggressive
use of threat tactics. Since trade relations between the United States and
Japan are highly competitive, a large number of American manufacturers faced strong Japanese competition. Not surprisingly, the majority of
business groups, even including those targeted by Japanese counterretaliations, welcomed sanction threats that would allow them to enjoy
the bene‹ts of a protected home market and to gain an advantage over
their Japanese competitors. In all four cases, unity among interest
groups contrasts sharply with divergent business interests in the China
cases, contributing to the success of threat tactics.
Equally important to the enhanced effectiveness of American
threats was the consensus the two government institutions were able to
forge with regard to the appropriate trade strategy toward Japan.
Faced with Congress’s call for tough action to deal with the spiraling
U.S. trade de‹cit with Japan and with Japan’s anticompetitive trade
policies, the U.S. executive could have, as in the China cases, chosen to
emphasize America’s broader security and economic interests. However, that Japan’s unfair trade practices in a wide assortment of industries posed a grave threat to the survival of competitive U.S. ‹rms precluded dispute resolution through broad discussions. Cases involving
high-tech industries in particular had created a strong incentive for the
free traders of the United States to adopt a managed trade policy to
counter the effects of foreign government’s protectionist policies.107 In
such cases, consideration for America’s long-run economic well-being
and security needs convinced both the Reagan and Bush administrations, including even those administrative agencies more sensitive to
U.S.–Japan political relations, of the need to adopt more aggressive
tactics in dealing with Japan. With threats being rati‹ed by both government institutions, Japan became aware of the U.S. determination to
obtain a fair trade outcome and, as a result, offered concessions that
would have been unimaginable in the absence of American pressure.
Unity among domestic constituents and the two government
branches thus substantially increased the credibility of American
threats, facilitating the achievement of American objectives in these
negotiations. American pressure halted Japan’s competitive onslaught
in the semiconductor case and helped U.S. supercomputer, satellite,
and forest products manufacturers secure a foothold in the Japanese
public-sector market. The gains to American producers were by no
means inconsequential.